During today's DecisionPoint show on StockCharts TV (airing Fridays at 4:30p EST), Carl and I discussed how, while we're still bearish, there are signs of improvement. The main problem will be getting too overbought. Three signs of definite improvement are the two new IT Price Momentum Oscillator (PMO) BUY signals on the Dow and SPX Scoreboards, as well as the new LT Trend Model BUY signal on Consumer Discretionary (XLY), generally considered an aggressive sector that does well in bull markets.
You'll note the positive PMO crossover that triggered the IT PMO BUY signal on the weekly chart for the Dow below. Remember that PMO signals are derived from the daily (ST), weekly (IT) and monthly (LT) charts. I was concerned that price was going to have difficulty with overhead resistance at the intersection of the declining and rising trend lines. I've annotated previous PMO BUY signals; they tend to be pretty accurate for the intermediate term.
While the SPX has broken out of the declining trend, it still hasn't quite made it over the LT rising trend line. I've highlighted two PMO BUY signals that I believe will be the result of this current BUY signal. It's possible we could end up with consolidation instead of strong upside movement.
The PMO on the daily chart for XLY is overbought. However, we have seen it move down to -3 readings, which implies that +3 could end up being the top of the zone. The biggest obstacle ahead is $112. PMO bottomed above the signal line. I would like to see a more healthy OBV, but it isn't currently showing any major negative divergences.
Technical Analysis is a windsock, not a crystal ball.
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